How is Severance Calculated Anyway?

How Is Severance Calculated Anyway?

There are a lot of myths, misconceptions, and misinformation when it comes to your employment entitlements. There is no greater area of confusion then in the calculation of severance pay when an individual is terminated. Many believe that there are “rules of thumb” that apply when calculating severance– one week per year, one month per year and so on. This is complete nonsense. There is no mathematical formula which dictates severance when an individual is dismissed from their employment. Instead, there are a number of factors when considered together, determine what an individual is owed. So, how is severance calculated? Well…

Length of Employment

The most commonly cited and misunderstood factor is the length of service an individual has with an employer. Many individuals believe that only those employees with many years of service are owed severance packages. This is completely incorrect. In many cases employees with the shortest service time are provided with comparably higher severance payments. For example, an employee who is 60 years old, with 30 years of service would be entitled to as much as 24 months’ severance. Whereas that same employee with only 2 years of service would be entitled to as much as 8 months’ severance.

Age

Typically, older employees are entitled to greater amounts of severance. This accounts for the increased difficulties that older workers face when seeking re-employment. That certainly does not mean that a younger worker should not seek out a fair severance package. Too often I speak with young workers who were reluctant to call me due to their age. While age is a factor, it is only one consideration of many which can impact the amount of severance you are owed. Everyday my firm assists young workers in negotiating significantly increased severance.

Position

Traditionally, senior employees or those employees with specialized skills were paid greater amounts of severance. While that is still true in many respects, the playing field has begun to level out in recent years. More and more, severance is being increased as a result of the difficultly an individual has in replacing employment and not based only on the position they held with their former employer. As a result it is more important now than ever to fully assess exactly what you are owed when dismissed.

Availability of Employment

In today’s increasingly challenging and competitive employment market it is taking individuals longer periods of time to secure employment after they are dismissed. This is one of the most important factors in determining the amount of severance owed and applies to individuals of all ages, who are both short and long service employees. An employee working in a declining industry, such as manufacturing, will not be able to replace their position as quickly as the average person. Remember, the purpose of severance is to compensate you for the time you are out of a job.

Other Important Considerations

Other factors which will increase the severance you are owed:

Whether you were recruited to the position from a secure job.

Whether you are subject to a non-competition or non-solicitation clause that limits your future prospects.

Whether you are pregnant, ill, or suffer from a condition which would make it difficult for you to find work.

Whether your employer has terminated you for cause which will make it difficult for you to find new employment.

Severance pay must take into account all factors including your personal and employment circumstances. Most employees are offered much less severance than they are owed. If you lost your job, call me. You can also visit www.SeverancePayCalculator.com and find out exactly what you are owed if you lost your job. It is free, anonymous, accurate, and very simple to use.